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Your Monday Morning Wake-up Call

Risk: Sorting out the Real Issues

When your organization is managing several hundred thousand suppliers, risk can become a significantly complex factor in your business, which poses the question, do we have our sights set on the real issue? Supplier solvency appears to be a common topic of concern today, so let’s examine some statistics:

For example, from 1990 to 1993 the bankruptcy rate for U.S. firms was about 1.32% of the total number of firms; it is estimated that from 2005-2008 the rate was significantly lower at 0.54% (based on data from the American Bankruptcy Institute and the U.S. Census Bureau). It’s been estimated that the rate for 2009 will rise to 1.01%, a very large increase but still well below the average for 1990-1993. Additionally, in 2008 there were 43,546 firms filing for bankruptcy; that figure is expected to rise in 2009 to just over 60,000. However, over the past 20 years, the peak in the number of bankruptcies occurred in 1991 with 71,549 firms filing and the lowest point came in 2006 with only 19,695. Yet we are in the most severe downturn since the Great Depression. While supplier insolvency needs to be a concern for us at all times, it appears the effort to focus on it in managing risk today may be somewhat misplaced.

It seems to us that the most significant risk in the procurement process is not supplier insolvency but poor scheduling and late deliveries; not always an entirely supplier generated problem. Late deliveries generally impact a schedule, manufacturing or project, causing delays and most likely additional cost. Other factors, such as poor quality, can be another component in this dilemma. However, we seem to have that under control with TQM, SPC and Six Sigma. There are always inaccurate price estimates for new products as well, and maybe difficult to control without dedicated resources to conduct thorough cost and price analysis. There are also a variety of financial, legal and human behavior risks that are impossible to predict. So the question is can we do more than just watch?

Let’s stop to think for a moment. Did anyone in procurement address the issue of risk twenty years ago? Were there any consultants or third party service providers out there offering to identify risk in a company’s supply base? In today’s society, especially with the down turn in the economy, organizations are becoming more aware of this issue at hand and are implementing a learning management system or e-learning courses into their repertoire to educate their employees on Risk management and how to identify and address the problem using methods best fit for their infrastructure in resolution.

Tell us the areas of risk you believe are the most important. Again, we have our preferences but let’s hear back from you. What is your experience and what do you typically monitor?

Fred Sollish for Supply Knowledge Monday, October 26, 2009

2009 Global Survey of Supply Chain Progress

Economic pressures are forcing companies to employ their supply chains, primarily the sourcing and procurement functions, to contain costs and boost revenue, according to the 2009 Global Survey of Supply Chain Progress from CSC (NYSE: CSC), Supply Chain Management Review magazine, the Council of Supply Chain Management Professionals (CSCMP) and Michigan State University (MSU).

http://bit.ly/l2iLg

Supply Chain Mastery Research

Increasing economic volatility has severely disrupted the supply chains of companies across industries. Rapid swings in the availability and price of key commodities, major currency fluctuations, upheaval in financial markets, disruptive geopolitical events, and continued development of customer channels on a global basis have conspired to place unprecedented pressure on the way companies source, manufacture and distribute products.

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B2B Purchasing: A Risky Proposition

Enquiro, released a white paper entitled Mapping the BuyerSphere (registration required). The white paper presents findings of Enquiro’s recent research into B2B buyer behavior; illustrates risk as the common, dominant factor in B2B purchasing; and explores an alternative model for targeting and mapping markets and prospects. Gord Hotchkiss and his team have done a great job, and the paper is well worth downloading.

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Supply Chain Integration: Challenges and Good Practices

CAPS Research Recent Publications by Phillip L. Carter, D.B.A.; Robert M. Monczka, Ph.D.; Gary L. Ragatz, Ph.D.; Pete L. Jennings

Competitive challenges of the last decade have a strong direct effect on supply chain strategy and integration. This report focuses on two key issues - alignment and linkage (both inside an organization and across organizations) and how supply chain management must support the broader enterprise strategy.

The research identifies four critical supply strategy areas (providing "winning" strategies for each area); key supply chain execution processes; supply chain enablers; and 14 challenges organizations must meet to achieve true supply chain integration. The report includes illustrative practices from case studies and industry analyses for five sectors, detailing competitive forces and supply chain integration's critical role.

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By Controlling Project-Based Indirect Spending Companies Can Net Significant Savings

Hackett's study looked at how effectively procurement organizations manage and control non-recurring project-based indirect supplier expenditures in IT-Telecom, HR, Sales & Marketing, Finance & Corporate Services, and Capital Equipment & Services. The study, which polled both procurement organizations and also the budget owning functions, found that project-based spending represents up to 35% of all the total procurement spending, and is often not well supported by the sourcing resources or processes of purchasing departments. In fact, the process is managed by dedicated sourcing professionals with specialized expertise only 17% of the time.

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Purchasing Officers: Confident Now, But is Trouble Ahead?

While the recession has strengthened their negotiating positions, many purchasing professionals have not yet assessed the impact of the recession on their supply management strategy.

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Corporate Purchasing Confidence

Concepts:

purchasing, supplier, purchasing professionals, businesses, management, procurement, downturn, cost, economic downturn, BravoSolution, cost savings, risk, supply management, CPOs, long-term, investment, negotiation.

Summary:

69% of purchasing professionals are yet to examine the impact of the last six months on their supply management strategy, leaving them exposed to potential long-term problems.

Of the 31% that have examined the impact of the recent economic downturn, almost three quarters (72%) are introducing changes to their supplier management strategy, indicating that there is a fundamental need for purchasing professionals to evaluate the risks that recession has created if they are to effectively manage future changes.

"When costs need to be cut and supplier contracts renegotiated, it is clear that procurement can play a leading role in steering their businesses through the current economic turbulence," says Nader Sabbaghian, CEO of BravoSolution.

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